C-317/94

GIBBS v COMMISSIONERS OF CUSTOMS AND EXCISE

JUDGMENT OF THE COURT (Sixth Chamber) 24 October 1996*

In Case C-317/94,

REFERENCE to the Court under Article 177 of the EC Treaty by the VAT and Duties Tribunal, London, for a preliminary ruling in the proceedings pending before that court between

Elida Gibbs Ltd

and

JUDGMENT OF 24. 10. 1996 — CASE C-317/94

Advocate General: N . Fennelly, Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

— Elida Gibbs Ltd, by David Milne QC , instructed by Coopers & Lybrand, Chartered Accountants,

— the United Kingdom Government, by Stephen Braviner, of the Treasury Solici­ tor's Department, acting as Agent, and Kenneth Parker QC ,

— the German Government, by Ernst Röder, Ministerialrat in the Federal Minis­ try of the Economy, and Gereon Thiele, Assessor in the same ministry, acting as Agents,

after hearing the oral observations of Elida Gibbs Ltd, represented by David Milne QC and John Arnold, Tax Adviser, the United Kingdom Government, represented by Kenneth Parker QC , the Greek Government, represented by Fokion Georga- kopoulos, Legal Adviser in the State Legal Service, and Anna Rokofyllou, Adviser to the Deputy Minister for Foreign Affairs, acting as Agents, the French Govern­ ment, represented by Gautier Mignot, Secretary for Foreign Affairs in the Direc­ torate for Legal Affairs, Ministry of Foreign Affairs, acting as Agent, and the Commission, represented by Peter Oliver and Enrico Traversa, at the hearing on 25 April 1996,

after hearing the Opinion of the Advocate General at the sitting on 27 June 1996,

gives the following

Judgment

1 By order of 30 November 1994, received at the Court Registry on 6 December 1994, the VAT and Duties Tribunal, London, referred to the Court for a prelimi­ nary ruling under Article 177 of the EC Treaty two questions on the interpretation of Article 11 of the Sixth Directive, Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, hereinafter 'the Sixth Directive').

2 Those questions have been raised in proceedings brought by Elida Gibbs Ltd (hereinafter 'Elida Gibbs') against the Commissioners of Customs and Excise (hereinafter 'the Commissioners'), who are responsible for collecting value added tax in the United Kingdom (hereinafter 'VAT'), in which Elida Gibbs seeks a refund of sums paid by it in respect of VAT.

6 In the case of the money-off coupons under the retailer-specific scheme, Elida Gibbs enters into an arrangement with a retailer to organize a promotion scheme for a particular product or a particular line of products. The operation lasts for a limited period. The retailer concerned prints the coupons under contract to Elida Gibbs and distributes them to the public. Again, each coupon has a face value (for example 15 pence) and mentions the product or products for which it may be pre­ sented as part payment of the price. The name of the retailer also appears on the voucher, which can be used only in that retailer's shops.

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GIBBS v COMMISSIONERS OF CUSTOMS AND EXCISE

7 Whether the buyer of Elida Gibbs products is a wholesaler or a retailer, Elida Gibbs charges the supply at a specific, VAT inclusive, price, which it invoices to its buyer under both variants of the money-off coupon schemes described above. The amount invoiced for the supply is determined irrespective of any present or future promotion scheme. Thus, the wholesaler or retailer may not know, when purchas­ ing goods from Elida Gibbs, that those goods are, or are to be, the subject of a money-off coupon promotion scheme. At that stage, it may be that no scheme is in existence or even planned.

8 Sales by wholesalers to retailers take place at the wholesaler's prices which are like­ wise unaffected by any promotion campaign.

9 The retailer puts the specified goods on sale at the shelf price. Where the basic scheme is in operation, the customer buying the product specified on a voucher may present the voucher and the retailer may accept it. In such cases, the retailer receives the shelf price, less 15p, and keeps the voucher. He is not, however, required to accept the voucher in place of the 15p cash. On the other hand, where a retailer has an arrangement with Elida Gibbs under a retailer-specific scheme, it is contractually committed to accept the voucher in place of the 15p in cash.

13 Taking the view that there was no retroactive discount, the Commissioners rejected Unilever's request by decisions of 5 May 1993 as regards money-off cou­ pons and of 8 October 1993 as regards cash-back coupons.

14 In the case of money-off coupons, the Commissioners considered that the amounts that they represented were part of the consideration received by the retailer for supply of the goods to the customer. Being paid by Elida Gibbs, those amounts constituted 'third-party consideration' which, under Article 11(A)(1) of the Sixth Directive, was to be included in the taxable amount for VAT in respect of the retailer's supply.

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GIBBS v COMMISSIONERS OF CUSTOMS AND EXCISE

15 As regards cash-back coupons, the Commissioners considered that, since the con­ sumer obtained his refund direct from the manufacturer, after making the appro­ priate application, the retailer played no part in the transaction. There was there­ fore no direct link between the supply of goods by the manufacturer to the retailer or wholesaler and the reimbursement from the manufacturer to the consumer.

16 Elida Gibbs challenged those decisions of the Commissioners by two applications to the Value Added Tax Tribunal (now the VAT and Duties Tribunal), London, which were joined.

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JUDGMENT OF 24. 10. 1996 — CASE C-317/94

(d) the retailer accepts the coupon on sale of the item of goods to the cus­ tomer, presents it to the manufacturer and is paid the stated amount?

Is the manufacturer's taxable amount the manufacturer's price or that price less the stated amount?

Is the answer to the above question any different if the original supply is made by the manufacturer to a wholesaler rather than directly to a retailer?

2. Cash-back coupons

Is the manufacturer's taxable amount the manufacturer's price or that price less the stated amount?

Is the answer to the above question any different if the original supply is made by the manufacturer to a wholesaler rather than to a retailer?'

General considerations

18 Before replying to these questions, it is appropriate to describe briefly the basic principle of the VAT system and how it operates.

19 The basic principle of the VAT system is that it is intended to tax only the final consumer. Consequently, the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer which is the basis for calculating the VAT ultimately borne by him.

20 Thus, in Case 89/81 Staatssecretaris van Financiën v Hong Kong Trade [1982] ECR 1277, paragraph 6, the Court held that it was apparent from the First Direc­ tive (Council Directive 67/227/EEC of 11 April 1967 on the harmonization of the legislation of the Member States concerning turnover tax (OJ, English Special Edi­ tion 1967, p. 16) that one of the principles on which the VAT system was based was neutrality, in the sense that within each country similar goods should bear the same tax burden whatever the length of the production and distribution chain.

25 The questions submitted by the VAT and Duties Tribunal, London, must be con­ sidered together in the light of those considerations.

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GIBBS v COMMISSIONERS OF CUSTOMS AND EXCISE

The preliminary questions

26 By virtue of Article 11(A)(1)(a) of the Sixth Directive , the taxable amount for sup­ plies of goods and services within the territoiy of a state comprises all sums which make up the consideration which has been or is to be obtained by the supplier from the purchaser.

27 According to the Court's settled case-law, that consideration is the 'subjective' value, that is to say, the value actually received in each specific case, and not a value estimated according to objective criteria (see Hong Kong Trade, cited above, para­ graph 13, Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365, paragraph 16, and Case C-126/88 Boots Company v Commissioners of Customs and Excise [1990] ECR 1-1235, paragraph 19).

31 It is true that that provision refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subse­ quently. The fact remains, however, that the provision is an expression of the prin­ ciple, emphasized above, that the position of taxable persons must be neutral. It follows therefore from that provision that, in order to ensure observance of the principle of neutrality, account should be taken, when calculating the taxable amount for VAT, of situations where a taxable person who, having no contractual relationship with the final consumer but being the first link in a chain of transac­ tions which ends with the final consumer, grants the consumer a reduction through retailers or by direct repayment of the value of the coupons. Otherwise, the tax authorities would receive by way of VAT a sum greater than that actually paid by the final consumer, at the expense of the taxable person.

32 That interpretation is not invalidated by the arguments advanced by the United Kingdom, German and Greek Governments to the effect that deduction from the taxable amount of reductions granted directly, or of refunds made directly, to the consumer by the initial supplier after delivery to a wholesaler or retailer would upset the functioning of the VAT machinery and render the system unworkable because it would require each wholesaler or retailer in the chain retroactively to adjust the price and, consequently, the amount of VAT they had paid to their own supplier and would require the latter to issue amended invoices.

34 In view of all the foregoing considerations, the answer to the first question submit­ ted must be that Article 11(A)(1)(a) and Article 11(C)(1) of the Sixth Directive are to be interpreted as meaning that where (a) a manufacturer issues a money-off cou­ pon, which is redeemable at the amount stated on the coupon by or at the expense of the manufacturer in favour of the retailer, (b) the coupon, which is distributed to a potential customer in the course of a sales promotion campaign, may be accepted by the retailer in payment for a specified item of goods, (c) the manufac­ turer has sold the specified item at the Original supplier's price' direct to the retailer and (d) the retailer takes the coupon from the customer on sale of the item, presents it to the manufacturer and is paid the stated amount, the taxable amount is equal to the selling price charged by the manufacturer, less the amount indicated on the voucher and refunded. The same applies if the original supply is made by the manufacturer to a wholesaler rather than directly to a retailer.

35 The answer to the second question must then be that Article 11(A)(1)(a) and Article 11(C)(1) of the Sixth Directive are to be interpreted as meaning that where (a) in the course of a promotion scheme a manufacturer sells items of goods at the 'manufacturer's price' direct to a retailer, (b) a cash-back coupon for an amount stated on the packaging of those items entitles the customer, if he proves purchase of one of those items and satisfies other conditions printed on the coupon, to present the coupon to the manufacturer in return for payment of the stated amount, and (c) a customer purchases such an item from a retailer, presents the coupon to the manufacturer and is paid the stated amount, the taxable amount is

THE COURT (Sixth Chamber),

in answer to the questions referred to it by the VAT and Duties Tribunal, London, by order of 30 November 1994, hereby rules:

1. Article 11(A)(1)(a) and Article 11(C)(1) of the Sixth Directive, Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, are to be interpreted as meaning that where (a) a manufacturer issues a money-off coupon, which is redeem-

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able at the amount stated on the coupon by or at the expense of the manu­ facturer in favour of the retailer, (b) the coupon, which is distributed to a potential customer in the course of a sales promotion campaign, may be accepted by the retailer in payment for a specified item of goods, (c) the manufacturer has sold the specified item at the Original supplier's price' direct to the retailer and (d) the retailer takes the coupon from the customer on sale of the item, presents it to the manufacturer and is paid the stated amount , the taxable amount is equal to the selling price charged by the manufacturer, less the amount indicated on the voucher and refunded. The same applies if the original supply is made by the manufacturer to a whole­ saler rather than directly to a retailer.